Will the Dow's Second Half Be Better Than the First?

With the stock market already having put in a strong year's worth of performance in just the first six months of 2013, investors are torn between fear and greed. On one hand, as mainstream investors start to turn their attention away from bonds and toward stocks, investors who stick with the stock market could earn even stronger gains throughout the rest of the year. On the other hand, the gains we've already seen imply economic strengthening that might prove unsustainable.

For today, though, the bulls are winning the argument. Rising levels of construction spending and manufacturing activity in the U.S., as well as a strong Tankan survey in Japan, lent support to those who believe the global economy is on the upswing. Those reports helped push the Dow Jones Industrials (DJINDICES: ^DJI) up 145 points by 10:45 a.m. EDT, while the S&P 500 and Nasdaq rose even more sharply.

But looking at how various stocks are performing today gives some hints that investors might not be quite as bullish as you'd expect. Caterpillar (NYSE: CAT) and Alcoa (NYSE: AA) , which have lagged the Dow badly this year and have acted as a proxy for sentiment about the global economy, posted only modest gains of around 0.1%. Although a single day doesn't provide much information about long-term prospects, the first day of the month often represents a big day for money flowing into the market, so watching these stocks fail to attract investor attention signals that investors aren't convinced that the construction and commodities businesses are likely to be the strongest performers in the near future. Alcoa continues to make moves to shut down production facilities in response to poor pricing conditions, while Caterpillar's acquisition this morning of marine propulsion and control company Berg Propulsion wasn't enough to drive interest in the construction equipment giant.

Meanwhile, some of the most defensive names in the Dow are doing particularly well. Both Procter & Gamble (NYSE: PG) and Coca-Cola (NYSE: KO) are up about 1.5% as investors choose to stick with the basics of slow but steady growth and solid dividend income. Especially for those who are moving their money out of the bond market, these income producers are appealing in their simplicity and their consistency. Yet value-sensitive investors need to pay attention to their valuations, which are fairly high in comparison to their growth potential. With P&G just now working on reversing poor business performance in recent years, and Coke fighting to deal with slowing emerging-market economies, you can't afford to pay too much for even these high-quality stocks.

It might seem overly optimistic to expect the Dow to beat its first-half performance from now until December, and you shouldn't count on it. But neither should you rule it out entirely. Keeping a long-term perspective is your best way to deal with market swings, no matter what happens.

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